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Unformatted text preview: 6-2 When an internal service fund is used expenditures are recorded only to the extent of revenues and not the true amount of the expenditures. For this reason, if an internal service fund is operated at a significant profit the expenditures will be overstated. Conversely, if an internal service fund is operated at a significant loss the expenditures will be understated. Either of these situations would result in an inacurate reflection of the true operational cost of the government. 6-3 Accounting for an enterprise fund is much different from that of an internal service fund. With an enterprise fund it is desirable to have an operating profit because, like a commercial business, this means that the additional profits would be available for re-investment. An example of an enterprise fund is a state lottery which re-invests profits back into government expenditures like public education. ...
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- Spring '11